The European Central Bank’s War on Wages is Pushing Europe’s Economy to the Brink
Bill Black: The media has failed to report on the causes and possible solutions for Europe’s deflating economy
KAYLA RIVARA, TRNN PRODUCER: Welcome to The Real News Network. I’m Kayla Rivara in Baltimore. And welcome to this latest edition of the Black finance and fraud report.
Now joining us is Bill Black. Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He is a white-collar criminologist and a former financial regulator. And he’s also author of the book The Best Way to Rob a Bank Is to Own One. And he’s a regular contributor to The Real News Network.
Thank you so much for joining us, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.
RIVARA: So you recently wrote a series of pieces, a three-part series, to be precise, on eurozone deflation. Can you explain what your pieces entail?
BLACK: Yeah. So what’s crazy is both the policies being followed by what’s called the troika–and that’s the European Commission, the European Central Bank, which is called the ECB, and the International Monetary Fund, which is called the IMF. So these are the three groups that demanded austerity in the midst of dealing with the Great Recession, which is utterly insane in economics and produced a second gratuitous Great Recession throughout the eurozone and worse than Great Depression levels of unemployment in Spain, Italy, and Greece. And so that’s the first insanity, their policies.
But the second insanity is the way their policies are being covered in the United States financial press. So the specific context is there’s this whole spate of articles, because the inflation rate has been declining in the eurozone and is way below what the eurozone supposedly wants–it supposedly wants about 2 percent inflation; it’s fallen month after month to now just about one half of 1 percent. Okay? And so if it goes absolutely negative, that’s called deflation, and deflation is associated in the public mind with Japan and their two lost decades of growth. So that’s the thrust of oh my God, there might be this deflation, then there might be some crisis, then the European Central Bank might have to do something on monetary policy–gosh, will it move? is sort of the motif.
And here’s the crazy things about all of that. First, you know, the same thing that causes deflation and a declining inflation rate is what causes this massive unemployment that is causing all this human misery and that is, again, completely gratuitous–absolutely no reason this recession should exist. And that cause is insufficient demand for goods and services. And the answer is clear–and even the IMF, part of the troika, says that the answer is to use fiscal policy, fiscal stimulus, and get people out of these terrible recessions.
But no, they refuse to do that. The articles refuse to even discuss the cause of deflation. They barely mention that Spain is actually in deflation already. And here was the really amazing–and they never discuss the alternative, right? The alternative of fiscal stimulus disappears from the articles, as does the word demand.
Instead, we got this amazing revelation–but The New York Times completely missed the significance of it–and that is, the head of the European Central Bank, Mario Draghi, said, I like deflation: if there’s deflation, then wages and prices will fall a lot for European workers in the periphery, and that means that they can export goods and there can be a recovery. So the key is to impoverish the working class of Spain and Italy and Greece even more–which, by the way, would reduce demand and make things worse in reality, but in the Draghi delusional world of deflation this would be a good thing.
Now, the European Central Bank has a whole web page devoted to deflation, and it explains why deflation would be a disaster, and it explains why it has a policy of making sure that they get nowhere close to deflation, even though they not only are close, they’re–actually achieved deflation in Spain. So there’s one policy that’s for the public that’s supposedly the policy, and then there’s the real policy, which is Draghi’s, which explains why the European Central Bank hasn’t been acting, because they want to crush wages in the periphery.
And we call this the road to Bangladesh strategy, in which everybody’s supposed to slash their wages to the point of very poor nations abroad. And that’s supposedly going to be the cure for European economic problems.
It is a travesty of economics. It’s economic malpractice. And it is also journalistic malpractice.
RIVARA: Bill Black, thank you so much for joining us.
BLACK: Thank you.
RIVARA: And thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.